Reference Article: Top DRIP Strategies for Maximum Earnings | by Hjellen | Feb, 2022

What is your goal with DRIP?

Is it to get your cash out ASAP, feel better, then look for gains after that? Perhaps you have a goal to purchase something in 12 months and want this to be your source for that purchase. Maybe you want to max out your gains at one year or take money back slowly along the way.

When it comes down to it, the difference between one strategy and the next can be brought down to how one decision is made, when to compound and when to claim. How one balances that simple choice produces a lot of variability. The wrong balance between those two will produce significantly less in gains.

This article will be geared towards the reader who is already invested into DRIP and looking to maximize gains within the framework of their specific financial goals. For the reader who wants to know more about DRIP, what it is and whether it is an investment that meets their needs and level of risk tolerancethey can go HERE.

The purpose of this article is to review the top DRIP strategies leaving the reader with the knowledge needed to 1) know which strategy fits their financial goals and 2) know how to use that strategy in an optimal fashion.

To make the strategies comparable, there will be some standards…

  1. Each strategy starts with a $1,000 “investment”. This means that, after the 10% tax, each investment will start with $900 in the DRIP pool providing the 1% daily return.
  2. Each strategy assumes the price of DRIP will be unchanged.
  3. Each strategy assumes that no additional money will be brought in through referrals, airdrops or additional deposits. Compounding is allowed of course.
  4. All strategies will end at a year as the 365 day expiration will hit on that original $1000 deposit. So the amount that can earn interest will drop by $900 at that time, then the next day it will drop by another $8.55, and so on. At the same time the amount that can earn interest will be increased by whatever is being compounded on that day. The calculations just get too complicated for my tiny brain after a year.
  5. For these strategies I will not include gas fees. In general they are less than $1 per transaction. I trust the reader who wants to bring that into their calculation can determine how many transactions they will need to complete and bring in the appropriate deduction.

I want to get my money out first.

There is a psychological reassurance one gets knowing that they got their initial return back from any investment. Obtaining that reassurance is the first goal of this investor, but what is the best way to reach that goal?

No compounding at all: This is as straightforward as one can get. If the investor waits 124 days then they will have enough to pull out their funds and get the original $1,000 investment back.

  • $9 x 124 days = $1,116
  • $1,116 – 10% fee= $1,004.40

Compounding for a day or two doesn’t change this end point. It will still take 124 days. However, if the investor compounds for 4 days, then they will be able to get that initial investment back one day earlier.

Compounding for 4 days: If the investor compounds for 4 days, then starts taking back gains, they end up with $934.69 sitting in the DRIP system going forward. This produces $9.3469 per day or $1,112.28 in 119 days. After losing 10% from the withdrawal tax, the investor ends up cashing out with $1,001.05 on day 123.

This trend continues through day 30. Compounding for 10 days gives the investor $989.25 in the DRIP system. This produces $9.8925 per day. After waiting another 113 days there will be $1,117.85 that can be claimed. Doing so triggers the 10% withdrawal tax and the investor ends up with $1,006.07 after 123 days. Compounding for 20 days will allow for a return on the original investment in the amount of $1,007.97 on day 123. Compounding for 30 days gives $1,195.18 which produces $11.9518/day. After 93 more days this will have produced $1111.52 which pays out $1000.37 after the 10% tax. This is also accomplished on day 123.

On day 31 it turns the other way. It now takes the investor 124 days to reclaim their original investment back.

In summary, an investor who wants their investment back ASAP will have to wait a minimum of 123 days. They have the option to compound anywhere from 4 to 30 days before they start collecting. Any choice within that range allows for full payback at day 123. However, AFTER reclaiming their investment on day 123 the investor who started collecting at day 4 will have $934.69 earning $9.3469/day whereas the one who started collecting on day 30 will have $1,195.18 earning $11.9518/day. That is an additional $2.6049/day in gains. It doesn’t seem like much, but when compounding interest comes into play it can lay a foundation for more rapid growth down the road.

Bringing that factor into the decision, the forward thinking investor will compound for 30 days, then wait to reclaim their original investment on day 123. After that, everything is profit, but because they waited until day 30 to start claiming, their future profit going forward will be higher.

This investor wants to get the most possible within a 365 day period. This investor compounds daily from day 1 through day 259. On that day they have $10,918.82 sitting in the DRIP system earning a daily return of $109.1882. From day 260 through 365 the investor does nothing and the $109.1882 per day starts adding up. The total available on day 365 is $11,573.95 which after taking out the withdraw fee, gas fees (being ULTRA-conservative, estimating at $1/day) and accounting for the initial loss of $1000 the investor will pocket $9051.55 in gains.

Compounding for 258 days gives $9,051.04, doing it for 259 days produces $9,051.55 and 260 days results in $9,051.07 in gains. So the sweet spot is 259 days to max out at 1 year!

This strategy is reviewed in more detail HERE.

This investor wants to compound twice a day. They have the same goal as strategy 2, to maximize their gains at one year, but they are willing to compound twice a day during that year to increase their earnings.

Compounding until day 259 is still the sweet spot. At that time they will have $10,982.56 in the DRIP system to start earning interest. Comparing that to the numbers above compounding twice a day will give the investor approximately $63.74 more to earn interest off of on day 259. Collecting this over the next 105 days will pay out $11,531.69. But we have to take out that pesky 10% tax which brings it down to $10,378.52. Accounting for that initial $1,000 investment that was lost brings the gains to $9,378.52. The strategy to compound twice a day provides an additional $60.99 in gains.

In this situation it makes sense to bring in gas fees. Estimating $1 per transaction will cost the investor who compounds once a day $365 in gas fees at the end of the year, whereas $730 will be spent if they compound twice a day. That does not offset the additional $60.99 gained from compounding every 12 hours. Even a more precise estimate of 508 transactions at $1 each would not work. In order to break even, the cost would have to average out to $0.12 per transaction.

Looking at the larger picture compounding twice a day does not improve an investor’s returns at one year.

This investor alternates between taking gains and compounding. On the odd days the investor compounds and on the even days gains are taken.

At three months the investor will have claimed $671.07 and have $1,587.16 still earning 1% daily interest in the DRIP system.

At six months they will have $1149.93 in their pocket and have $2,087.88 earning interest.

At nine months they will have collected $1830.02 and will have $2,798.99 earning the 1%.

At one year $3963.97 will have been claimed. At the end of that first year the investor will have $5,030.29 ready to earn interest in year 2.

This strategy compounds for 5 days, then claims on weekends.

After 3 months this investor will have claimed $432.85 and have $2,029.49 sitting in the DRIP system earning interest for the rest of the year.

After 6 months there will have been $793.08 claimed and there will be $3,047.60 earning interest.

After 9 months the person will have taken home $1379.76 and $4,448.47 will be producing future gains.

At 12 months this weekend warrior will have claimed $3524.55 and have $9,658.94 producing 1% interest for the next year.

This last strategy compounds 6 days a week and claims on the 7th.

At three months this person will have claimed $238.41 with $2,383.38 collecting interest.

At six months they will have claimed $459.69 while having burned $3,896.93 to make future interest on.

At nine months the person will have claimed $863.82 with $6,432.17 sitting in the DRIP system earning 1% daily.

At 1 year the investor will have saved $2659.20 and will have $17,358.88 earning interest for the following year.

No one approach is better than another, but one approach may be better for a given set of goals. These are the top strategies I’ve see posts about. If there are other strategies that are popular and you would like them to be included here, leave them in the comments section and if others agree with your suggestion I will edit the post. Please though, no strategies that go past that 365 day mark… they make my brain hurt.

For the reader’s convenience, most of these the calculations were done using THIS site. It can be used to fit any duration of investment. Make sure you take the 10% out of the initial investment, so if your investment is $1,000, use $900. Near the bottom, there is a compounding section that needs to be adjusted from the default of 100% down to 95% as the DRIP system will take a 5% tax out when you compound. It should look as it does in the picture below.

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